Euro Pound (EUR/GBP) Exchange Rate Rangebound amid Risk-On Mood
The Euro Pound (EUR/GBP) exchange rate is trading in a narrow range today. A return of global risk appetite may be capping gains for the pair.
On the other hand, cooler UK wage growth figures may be lending support to EUR/GBP.
At time of writing the EUR/GBP exchange rate was at around £0.8820, which is virtually unchanged from this morning’s opening figures.
Euro (EUR) Subdued as 50bps ECB Rate Hike Priced in
The Euro (EUR) is seeing subdued movements today. A risk-on mood may be weighed on the single currency today. Movement around EUR may also be muted ahead of the ECB’s interest rate decision on Thursday.
Expectations of a 50bps interest rate increase from the ECB may be underpinning the Euro today, however. Markets remain confident of such a move despite evidence of a split between ECB policymakers.
Carsten Brzeski, global head of macro at ING, said:
‘A 50bp rate hike next week looks like a done deal. The more heated debate at the European Central Bank will be about the path for monetary policy beyond the March meeting.’
This uncertainty concerning the ECB’s forward path is may be keeping the Euro within a narrow range today. The recent collapse of Silicon Valley Bank (SVB) has led to a reassessment in how much longer central banks will continue with interest rate hikes.
Pound (GBP) Trades Lower after Disappointing Wage Growth Figures
The Pound (GBP) is trending lower today after disappointing employment data. Expectations of a slowdown in policy tightening from the Bank of England may also be keeping pressure on Sterling.
The slowdown in wage growth is likely to be the key focus from the jobs data today. Wage growth including bonuses slowed to 5.7% in the three months leading to January. Additionally, February’s unemployment remained unchanged at 3.7%.
Whilst a 25bps rate hike from the BoE is now largely priced in, the data is likely adding to bets on an imminent slowdown.
James Smith, developed markets economist at ING, said:
‘Taken with last month’s dip in core services inflation, and the backdrop of firms lowering their pricing expectations, this latest wage data makes next week’s Bank of England decision more uncertain.’
EUR/GBP Exchange Rate Forecast: Will ECB Hint at Further Rate Hikes?
Looking to the rest of the week for the Euro, industrial production figures in the Eurozone could push the single currency higher on Wednesday. January’s output is expected to return to the positive territory of 0.4% versus Decembers fall of 1.1%.
EUR investors will be most keenly awaiting the ECB’s latest interest rate decision this week, however. The central bank is expected to hike interest rates by 50bps on Wednesday. If ECB President Christine Lagarde hints at further hawkish moves it could see EUR climb.
On the other hand, there have been signs of a split between ECB policymakers in the direction the central bank should take. If there is evidence of a dovish split between board members it could weigh on the Euro.
Finally, the final reading of February’s Eurozone inflation could deepen any losses for the single currency on Friday. Last month’s inflation is set to be revised lower to 8.5%.
For the Pound, the unveiling of the UK government’s spring budget could prompt movement in Sterling. Chancellor Jeremy Hunt is expected to announce corporate tax hikes and further energy bill support for UK households. Changes in Sterling’s fortunes may also be prompted by any additional repricing of BoE rate hike bets.
